Humboldt-Universität zu Berlin - High Dimensional Nonstationary Time Series

IRTG1792DP2018 004

Pricing Cryptocurrency options: the case of CRIX and Bitcoin

Cathy YH Chen
Wolfgang Karl Härdle
Ai Jun Hou
Weining Wang

The CRIX (CRyptocurrency IndeX) has been constructed based on a number of cryptos
and provides a high coverage of market liquidity, The crypto currency
market is a new asset market and attracts a lot of investors recently. Surprisingly a market
for contingent claims hat not been built up yet. A reason is certainly the lack of pricing
tools that are based on solid financial econometric tools. Here a first step towards pricing of
derivatives of this new asset class is presented. After a careful econometric pre-analysis we
motivate an affine jump diffusion model, i.e., the SVCJ (Stochastic Volatility with Correlated
Jumps) model. We calibrate SVCJ by MCMC and obtain interpretable jump processes
and then via simulation price options. The jumps present in the cryptocurrency fluctutations
are an essential component. Concrete examples are given to establish an OCRIX exchange
platform trading options on CRIX.

CRyptocurrency IndeX, CRIX, Bitcoin,Cryptocurrency, SVCJ, Option pricing,OCRIX